Economics

What Would Happen If Airlines Go Bankrupt?

Air travel has been severely impacted due to the COVID-19 pandemic.

One of the many industries that have been greatly impacted economically since the onset of the COVID-19 pandemic is air travel. Many countries worldwide have either grounded all flights or have significantly reduced the number of flights that are operational in order to flatten the curve and reduce the spreading of this virus. Although there are medical benefits in doing so, the economic impact that this is having to the travel industry overall is enormous. Once flights go back to normal operation, how will bankruptcy be avoided in the short term in order to salvage the future of airlines and other related entities? The effects that this virus is having globally is really difficult to grasp. 

Government Intervention

Many airlines have been forced to layoff thousands of active and support staff in order to reflect the drastically reduced number of flights that have taken place. Airline staff that is still working have taken significant pay cuts in order to remain employed. The general public, for the most part, is simply not flying as they are self-isolating and working from home so the airlines find themselves in unchartered waters. Those that are flying, it is only out of necessity. As a result, airlines are in financial crisis and have gone to their respective governments to ask for financial assistance to keep minimal operations possible until things stabilize and subsequently improve. 

Governments across the world have begun different programs from tax cuts for the airlines and bailout plans are in process, in the hopes that the airlines can continue to operate and not go bankrupt. In the US, $50 billion dollars in assistance has been requested to keep airlines from complete decimation. These loans and grants that are being considered by governments are with specific conditions airlines have to adhere to for execution. As an example, airlines will have to continue to keep staff employed when receiving these funds and will also have to agree to operate a certain number of flights servicing major hubs around the world, even if empty. In order to keep things moving, the airlines will transport essential medical staff and supplies to and from all major cities until people moving for the masses becomes the norm again.

Why Airlines? Why Not Help Hotels and Restaurants from Bankruptcy?

Airlines are the front lines when considering the travel industry as a whole. If people cannot fly to different places, they will not be able to get to hotels, resorts, and restaurants in other countries so it is imperative that the airlines are kept alive and operational until things normalize around the world. It is the classic domino effect. The pandemic will end eventually and the airlines cannot end with it. Because over 95% of the industry has come to a halt in a span of 4 short weeks, it is too vulnerable and not sustainable unless serious economic assistance is injected into the industry immediately. 

Credits and Refunds For Passengers 

Millions of passengers all over the world were forced to cancel flights and travel arrangements over the past several weeks for travel up to and including the end of April and in some cases the end of May. In reality, people will likely cancel or not start booking again for several weeks, and months after that.

For those who have paid for their flights and have canceled them, either out of fear or out of necessity, some are awaiting refunds and some have received travel credits for future flights. If the airlines ceased to operate permanently as a result of bankruptcy, what recourse would "Joe Public" have in this regard? What governing bodies would people have to appeal to in order to get a refund or to be able to use their credit? Insurance companies, financial institutions, travel agencies? Where would these funds come from? And how would credit be used for future travel if the airlines no longer existed? The loss would be catastrophic.

What Will Happen Next?

There is still so much unknown in the world as it pertains to so many different facets of the economy, lifestyle, health, and safety, but one thing is certain. Airlines need to continue to operate in some way, shape or form. The ramifications of the ceasing of air travel are not feasible in our world. It must continue and the governments are aware of this and are working diligently to ensure that bankruptcy is avoided. The Coronavirus pandemic will be over eventually and the ability to connect with the world through flying will need to continue.

About the Author

Elena Cortesi is a native Italian who has been living in Toronto, Canada for the past 46 years. Elena has an academic background in languages and writing and her career experiences include various marketing and managerial roles in travel, technology, jewelry, health and nutrition, and various entrepreneurial endeavors. Writing is her passion; a passion that allows her to share the written word to the world through various forms of media. 

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